AI-Driven Data Center Debt Surfaces as Growing Concern on Wall Street's Risk Radar

Investors Worry About Credit Threats from AI-Driven Borrowing Boom

Borrowing tied to the AI data-center boom is rapidly rising as a potential credit threat on Wall Street, with investors increasingly concerned that the breakneck pace of financing could lead to a market shock. A recent survey by Bank of America Corp. found that 34% of global fund managers believe AI hyperscaler capital spending is the most likely source of a future systemic credit event, more than double the share from April. This marks a significant shift in investors' perceptions of the market's biggest credit threats.

US private credit remains the top concern for 42% of respondents, although this is down from 57% last month. Tech companies have borrowed over $300 billion from US investors to fund AI spending since the beginning of last year, with bankers predicting billions more to come in the months ahead. The concern is that firms are taking on unprecedented amounts of debt to fund AI buildouts with uncertain payoffs.

The survey, which polled over 150 participants between May 8 and May 14, highlights the growing unease among investors about the risks tied to AI spending. In contrast, US consumer credit was the top concern for only 6% of respondents, while 4% listed Japanese government debt and 2% cited crypto and stablecoins as potential credit threats.

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Among broader tail risks, 40% of respondents noted a resurgence of inflation as the biggest threat, while 20% cited geopolitical conflict, 18% a disorderly rise in bond yields, 11% an AI bubble, and 6% private credit. Despite these concerns, lenders have grown more cautious about financing software companies that could be disrupted by AI, instead pushing more capital toward businesses directly tied to the technology.